Covid-19 has put the future of office REITs in the doldrums for over a year now. While some believe that employers are going to be more accepting of work-from-home policies, many still believe that the ability to collaborate in-person will continue to drive demand and occupancy for office space. The future is likely to be a hybrid of the two, but the question remains – how are some of the world’s biggest office landlords reeling from the pandemic? Using Pelion’s AI-powered earnings transcript analysis, we pick out some of the key discussions from Q1 2021 earnings calls from the top office REITs in the U.S.

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Boston Properties

Boston Properties - Property Map
Boston Properties – Property Map
  • Employees are returning to their offices as the economy reopens. Building census is picking up and tour activities have accelerated
  • Boston Properties expect a further drop in occupancy in Q2 2021 but expects occupancy and revenue to pick up in the second half of the year
  • Smaller tenants such as those in financial asset management are building our larger workstation areas that will not be shared among employees
  • Larger tenants have mixed plans in redesigning their workspace
  • Not a single tenant in New York has pulled a building permit to make changes to their space related to Covid
Owen Thomas: Thank you, Sarah, and good morning everyone. The BXP team is joining you today from our offices all over the country, where we are beginning to see renewed signs of life as our cities reopen with increasing activity on the street, in shops and restaurants, on public transportation and yes, even in office buildings where building census is picking up and tour activities accelerated. U.S. GDP is growing at 4.3%. Over 1.6 million jobs were created in the first quarter. Weekly jobless claims are in decline and unemployment has dropped to 6%, only 2.5 percentage point above pre-pandemic levels of February last year. U.S. retail sales surged 9.8% in March and air travel as measured by TSA Checkpoint is up 10x over a year ago, though still only 50% of pre-pandemic level.
Alexander Goldfarb: Hey, good morning. So yes, I want to describe those FFO drops for later this year. Now, we’ve given some guidance for second quarter and it does show that we will have pick up later in the year, and I think that if you look at Q2 you're going to – we expect to have a further drop in occupancy in Q2, and if you look at our rollover schedule, about 60% of the main rollover for the year is sitting in just Q2. So Q3 and Q4 have very light rollover exposure, so we do expect to have some pick up in occupancy and revenue in the back half of the year from that leasing activity, and we would expect occupancy by the end of the year to be somewhere between 88% and 89%. And then as I also said, we had 460,000 square feet signed that this was going to occupy this year, so that’s part of that number. So the improvement in the back half of the year is coming from a combination of some occupancy improvement from Q2 through Q4, and we also expect our parking to start to improve. As Doug mentioned it, we're starting to see some green shoots with the parking, they'll be helpful. And then we have a couple of the development deliveries that I talked about, you know 100 Causeway and that sort of revenue provided later in the year.
Doug Linde: So, let me just give a quick comment on that. Most of those smaller tenants are in the financial asset management professional services sector and they are building our perimeter offices in to our larger workstation areas, and everyone is getting the workstation and nobody's sharing anything, okay. So there's a significant component of the market in terms of the transaction volume that is in that sector. The rest of the larger tenants have – I think there is a whole spectrum of results that you're going to see. We had a tenant that took 75,000 square feet of space in Waltham and provided a – put a press release out with us you know a couple weeks ago and they basically said, we're obviously not putting a workstation in for every single person in our organization who lives in the Boston area, and we're anticipating that there are going to be some people who are working from home. I have a daughter who is working for a tech company in New York City and their mandate was, if you're not prepared to work X number of days per week, you're not getting a permanent workstation and you're going to have to work on the hoteling side, right. Owen had conversation and he'll describe them with some of the larger technology companies across the country and they have a very different perspective.
John Powers: I've heard a lot about this and in a lot of discussions about this, but I can tell you, in our portfolio in New York, not a single tenant has pulled a building permit to make any changes to their space related to COVID and we have almost 1 million square feet under construction during COVID and there was not one change order made by any of those tenants to adjust his plans pre-COVID while they were under construction. So I think this is a lot of wait and see. It takes a lot of capital to make the adjustments that I hear people talking about.

Hudson Pacific

Hudson Pacific - Property Map
Hudson Pacific – Property Map
  • Tech companies are leading the way in getting employees back to the office. Hudson Pacific’s focus on tech and media centers have provided some cushion to Covid-19
  • Tenants are continue to pay rent with Q1 2021 collection sitting at 98%
  • Leasing activity has doubled in Q1 2021 compared to the last five quarters and on par with the company’s long-term average quarterly leasing activity
Many of our large tech and media tenants are leading the way in terms of getting their employees back to the office. Google, Amazon, Netflix, Microsoft, Facebook and Uber all plan to bring employees back before or by at least the end of the summer. Bottom line, our focus on tech and media epicenters positions us extraordinarily well for the next phase and beyond. Our markets remain at the center of gravity for these industries, which have flourished through the pandemic. Venture capital investing surged for the first quarter to nearly $70 billion, shattering previous records. IPO activity remains very strong, and recruiters anticipate significant tech hiring.
Mark Lammas: More than a year into the pandemic, our tenants continue to pay rent. We’re also now successfully collecting both previously deferred and delinquent rents. This is all occurring despite California’s ongoing eviction moratoriums and renter protections, which are among the strongest in the nation. In the first quarter, we collected 98% of our combined contractual rents, comprised of 99% from office tenants, 100% from studio tenants and 54% from storefront retail tenants. April collections are tracking above these levels. In the first quarter, we also successfully collected over 99% of the deferred rents, which we – became due during the quarter. This trend is so far consistent for April. About 70% of the 80-or-so tenants that were three or more months delinquent between April and the end of Q1 are either fully repaid or have commenced repayment. This equates to nearly 75% of past due rents from these tenants being repaid. In the second quarter of last year, at the height of the pandemic, we received about 150 rent relief requests from tenants occupying nearly 750,000 square feet. By comparison, in Q1 of this year, we received only about 30 requests from tenants occupying around 175,000 square feet. All in all, we’re very pleased with how collections are trending.
Art Suazo: Thanks, Mark. In most of our markets, requirements are up 20% to 30% since year-end. Although this is yet to translate into significant deal volume, we expect both signed leases and fewer opportunistic sublease listings to begin to rightsize vacancy and overall availability rates in the coming quarters. We signed 524,000 square feet of deals in the first quarter. That’s essentially double our leasing activity over the past five quarters and on par with our long-term average quarterly leasing activity. Our GAAP and cash rent spreads were 12.2% and 2.4%, respectively.

Highwoods Properties

Highwoods Properties - Property Map
Highwoods Properties – Property Map
  • Highwoods is seeing a pick-up in utilization rates with small and medium-sized customers returning to their offices faster than larger users
  • The company continues to see increased requests for proposals, showings and space planning from prospects. Several existing tenants are requesting renewals in advance of their expirations
  • Highwoods’ focus on Sunbelt markets have been beneficial – increased inbound job creation and in-migration to the region have helped it weather Covid-19-related challenges
Ted Klinck: Thanks, Brendan, and good morning. Let me start by saying our buildings, which have remained open since the start of the pandemic, are starting to see utilization rates rise, albeit modestly. Generally, small and medium-sized customers are returning to their offices faster than larger users, though we are now hearing customers of all sizes are planning to return to their offices over the next few months. As I mentioned last quarter, it remains difficult to predict the duration and the severity of the current recession and when leasing will return to pre-pandemic levels, but activity has definitely picked up compared to one quarter ago. In addition, we continue to see increased requests for proposals, showings and space planning from prospects, and there are several existing customers requesting renewals far in advance of their expirations. With the improving macro environment, particularly in our markets, we're optimistic going forward.
Brian Leary: Thanks, Ted, and good morning, everyone. A resilient and diversified portfolio in markets benefiting from an acceleration of the great migration to the Southeast and a dedicated team of professionals who maintain, manage and lease, all under one Highwoods roof enabled us to weather the unprecedented challenges of 2020. With the first quarter being the initial barometer of what the business looks like, moving from triage to recovery, we believe 2021 is off to a solid start. First, with regard to those customers who had proven needs-based rent relief earlier in the pandemic, 73% of this consideration has been repaid and the balance is on schedule. Our Sunbelt markets have been recognized lately for what we believe has been compelling for quite some time. The number, magnitude and quality of inbound job creation announcements highlights the evolution of these cities into dynamic 18-hour national talent attractors. This transaction will add two high barrier-to-entry Sunbelt BBDs to our portfolio, establish a bulwark in SouthPark, Charlotte with five of the eight best buildings in the submarket and reinforce our leading position in Downtown Raleigh.

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